Online diamond and jewelry retailer, Blue Nile, Inc., reported Thursday that net sales increased 5.1 percent, year-over-year, to $80.5 million, a record second quarter sales level. Net income totaled $2.8 million, up 1.3 percent.
Despite the growth in revenue, increasing diamond and precious metals prices as well as weak consumer sentiment has had a negative impact on sales, particularly in its traditional bridal jewelry market. Growth for the period came from “non-engagement” jewelry, such as less-expensive colored-gemstone jewelry, and international sales, which grew 40.7 percent to 12.8 million, Diane Irvine, Blue Nile CEO said Thursday during a conference call with investors and the press. The Asia-Pacific region grew 100 percent to $5 million. Excluding the impact from changes in foreign exchange rates, international sales increased 29.7 percent.
Diamond prices increased 20 percent during the past year, Irvine said. Round diamonds experienced the largest price hike, rising 40-percent since last year. As an example, Irvine said a 1-ct. round diamond which cost $6,000 a year ago costs $9,000 today.
“While we delivered record second quarter sales and non-GAAP adjusted EBITDA, our results were impacted by rapidly rising diamond and metal prices amid a weakening consumer environment in the U.S.,” Irvine said in a statement. “Despite these external headwinds, we achieved sales growth across all product categories, including double-digit sales growth in the non-engagement category. We also experienced strong growth in our international business. In addition, we generated higher gross margins for the quarter and achieved our earnings per share stated guidance while investing in marketing and our international business.”
Operating income for the period, ended July 3, totaled $4.3 million, representing an operating margin of 5.3 percent of net sales.
Non-GAAP adjusted EBITDA for the period, ended July 3, totaled $6.9 million. For the trailing 12-month period, ended July 3, net cash provided by operating activities totaled $33.4 million compared to $24.1 million, year-over-year. For the same trailing 12-month period, non-GAAP free cash flow totaled $28.7 million.
Non-GAAP adjusted EBITDA for the period, ended July 3, totaled $6.9 million. For the trailing 12-month period, ended July 3, net cash provided by operating activities totaled $33.4 million compared to $24.1 million, year-over-year. For the same trailing 12-month period, non-GAAP free cash flow totaled $28.7 million.
Gross profit for the quarter grew 6 percent to $17.2 million. As a percentage of net sales, gross profit was 21.3 percent compared to 21.1 percent for the second quarter of 2010.
In its outlook, Blue Nile says that it expects net sales to be between $71.5 million and $74 million for the third quarter, ending October 2. Irvine, said during the conference call, noting the company is being cautious in its forecast because of rising prices and weak consumer sentiment. She added that the third quarter is usually the slowest month for bridal jewelry because there are no holidays during this period. But also said it is the period where the company’s margins are often the highest.